Fitch cuts Huadian Power International to 'BB-'

Fitch Ratings has downgraded Huadian Power International Limited's (HDPI) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'BB-' from 'BB'. The Outlook is Stable. The agency has simultaneously affirmed its Short-Term Foreign and Local Currency IDRs at 'B'.

"The downgrade reflects the weakened financial profile of Huadian Power International and its parent, China Huadian Group, in the face of continued disparity between high coal prices and artificially low electricity tariffs. The impact from slow tariff adjustments is highest for Huadian among Fitch-rated Chinese thermal power producers," notes Steve Cox, Director in Fitch's Asia-Pacific Energy and Utilities team. HDPI and China Huadian Group have, overall, worse interest coverage and leverage profile compared with their respective peers in China, as well as a heavy debt-funded capex programme.

Based on Fitch's parent and subsidiary rating linkage methodology, HDPI continues to be notched one level above its standalone credit profile, reflecting potential state support through China Huadian Group. The same methodology is being applied to China Huadian Group, which assesses its links to the sovereign. On a standalone basis, both the credit profiles of HDPI and China Huadian Group have been downgraded to 'B+' from 'BB-', before any assessment of state support.

Under current market conditions, the group's asset portfolio has greater exposure to the fundamental problems affecting all thermal power producers in China: a combination of tariff controls, rising coal prices, exposure to non-fulfilment of contract coal, and volatility in the non-contract coal spot market. The company's interest coverage is also negatively affected by the impact of base rate rises on floating-rate loans, and high borrowing costs in the CNY bond market. In FY10, HDPI's funds from operations (FFO) interest coverage fell below 2.0x from 3.0x in FY09.

Fitch continues to expect HDPI's total adjusted debt/operating EBITDAR to remain above 10x in the medium term.

The Stable Outlook reflects Fitch's expectation that the Chinese government will take adequate steps to support Chinese independent power producers such as HPDI - as evidenced in the retrospective tariff rises for 2010 production in some plants, and April 2010 tariff rises in certain provinces. The Outlook, however, also incorporates Fitch's view that the disparity between coal prices and tariffs will continue and the burden will be primarily born by power producers





Reuters